LFP096 – A Deep Dive into Marketplaces in the Fintech Age with David Mercer CEO LMAX Exchange

Which UK FIntech does $3trn of business per annum and are in 7 countries? Well I guess for readers on the website the pic above is a bit of a hint. David Mercer CEO LMAX Exchange joins us today to dive into the subject of marketplaces which have been a fundamental part of culture forever and a fundamental part of Fintech as a mechanism for connecting buyer and seller more efficiently.

LMAX Exchange’s claim is that they are leading the global FX industry transformation to transparent and fair execution. Sounds good but before we get around to that we look in depth at Marketplaces per se.

Topics discussed in the episode include:

the world record for playing rugby at the North Pole

how to get to the North Pole – useful consumer advice

David’s career journey inc the advent of electronic trading and brokerages

2012 MBO buying 2/3rds of LMAX

they have been profitable since 2013

the goal being to create the #1 FX marketplace

“now the world is a marketplace”

“market access is key” – wherever you sit in the world you can access every product or service

in only 7yrs of operation LMAX have customers in over 100 countries – the cost of doing this 10 or 20 yrs ago would have been prohibitive and near impossible

it is becoming easier to discover the price of things in general

what is required to create a “good” marketplace – #1 for all is Trust

how this wasn’t understood by all in early Fintechs who attempted to create arms length marketplaces [eg & esp Platform Black – LFP037]

amazon and ebay as examples

self-regulated marketplaces vs regulated marketplaces

trust and credit

“it takes a while for the service to become consistent, uniform and trustworthy”

cf pre-Big Bang critique of “clubs” air but necessity “even now” of needing members and rules for members [= club (!)]

LMAX rulebook is less than 40pp (and has to incorporate MIFID2’s 1.7m paragraphs)

the pyramid of marketplace, members [~5k] and then their end-customers [~100,000]

the functioning of the Eurobond market – no rules, no marketplace; “towns with no traffic lights or roundabouts”

“the less rules the better”

risk and marketplaces

what the value is in marketplaces when they are being sold

what do you get when you buy a marketplace? What factors are the most important

build vs buy

70% of LMAX’s costbase every year is technology

consolidation of marketplaces

what’s in it for the marketplace?

Fee levels $10 per $1m trade

the canard re “in a digital world fees will go to zero” – they won’t and why this will never happen

“we set up an exchange for the Fintech Age”

the need to get to scale and how the meaning of scale has changed

“people need to be paid to provide a service” – how this relates to opacity of pricing

why FX marketplaces now exist when they never did in the past

how the FX market is changing

80 currency pairs – they trade up to 400

24hr a day liquidity in sizes up to €50m; 5.5 days a week

price discovery over time and currently across markets/types of trade

regulation around best execution

a shoutout for my brand partners who are currently hiring in a wide range of roles